April 3, 2014

Inexcusably, Medicaid Expansion Proposal Omits More Than $1 Billion In New State Costs

The leading “Medicaid Transformation” proposal in the Missouri House purports to deliver a Medicaid expansion that effectively makes the state money. Suffice to say, that’s a highly questionable claim, and I don’t even have to cut apart any of the bill’s dubious calculations to reach a very different conclusion. Why? The issue is startlingly simple: The bill’s proponents simply did not account for more than half of the new costs of the Medicaid expansion.

Let me explain how that happened. There are two populations that we discuss regarding Obamacare’s Medicaid expansion. The more obvious of the two is the population that would become “newly eligible” under the law — those who, by virtue of the law’s passage, would now qualify for Medicaid coverage up to 133 percent of the federal poverty level. The Kaiser Family Foundation (KFF) estimated that had Missouri expanded its broken Medicaid program after the law passed, the newly eligible population would have cost the state more than a billion dollars from 2013 to 2022. The House expansion bill’s hypothetical budget only really integrates that group into its calculation starting in 2015.

It’s the second population, however, that is an even bigger budgetary concern, and it is substantively ignored in the expansion bill. That group is the “currently eligible” population: those who currently qualify for Medicaid but only become enrolled as part of the expansion’s enrollment push. The phenomenon is sometimes called the “woodwork effect,” as this population that has always been eligible emerges and begins leveraging the Medicaid entitlement for the first time. KFF estimated that over that same period, Missouri would pay $1.6 billion for those new enrollees. That’s more than a doubling of the expansion’s total costs. Without even addressing any of the other problems in the bill’s budgetary forecast, how would the state pay the currently eligible cost of the expansion? I haven’t heard an answer to that question for years now.

You can read more about the issue here. So far without expansion, Medicaid enrollment in Missouri has actually declined; under the circumstances, it is reasonable to suggest that implementation of the expansion itself would initiate the uptick in woodwork costs that KFF forecasted. It is inexcusable that these costs have not been accounted for in the House proposal, but rest assured, this isn’t the first Medicaid expansion proposal I’ve read that failed to integrate these expenses.

Spending is no substitute for reform of a thoroughly broken Medicaid program, especially when the forecasted costs are so woefully understated. If it wasn’t clear before, it should be now: reform is where the legislature should focus its attention, particularly this late in the session.

March 27, 2014

State Audit Recommends Sunset Of Historic Preservation Tax Credit

You saw the original, and now here’s the sequel. Just weeks after producing an excellent report on Missouri’s Low Income Housing Tax Credit, Missouri’s state auditors have returned with a review of the Historic Preservation Tax Credit (HPTC) program. We have talked about the HPTC at length here on the blog and elsewhere, and I am delighted that the state’s auditors took a look at a program that has hemorrhaged taxpayer money for years.

What did the auditors find? A lot. For starters, HPTC tax credits have cost the state nearly $600 million over the last five years alone and more than a billion dollars over the last 10. Missouri leads the country in “qualified rehabilitation expenses” (QRE) for historic preservation, which relates to the expenses against which the HPTC could be applied. Broadly speaking, the higher the QRE that rehabbers claim under the HPTC, the more money the state will be spending on it.

So, how big is Missouri’s QRE lead? Check out this chart from page 8 of the audit.

For perspective, Massachusetts, Virginia, Pennsylvania, and New York are all original U.S. colonies. Are we to believe that Missouri should have been subsidizing preservation spending at almost twice the rate as the next closest state… and not only that, subsidizing it at that level for more than a decade?

I can appreciate that we love our old buildings in Missouri, but if anything and everything can get the stamp of being “historic,” then we degrade the things that are, in fact, historic and waste limited taxpayer resources in the process. Could some projects be worthy of taxpayer support? Possibly, but those cases would be an exception, not a billion dollar rule.

To name a fraction of the examples that underscore this reality, Norwood Hills Country Club should not have received taxpayer money. A whole host of private mansions that the HPTC subsidized should not have received taxpayer money. Check out this story, from the audit:

In 2011, the DED issued about $296,000 in credits to an applicant who renovated a 3-story, 5,400 square foot home in an affluent neighborhood in a metropolitan area. The applicant purchased the home in 1993 for nearly $300,000 and reported about $1.2 million in qualified rehabilitation expenditures. The home has a fair market value of approximately $434,000.

So the owner buys a $300,000 house, drops $1.2 million into it, gets nearly $300,000 (almost what he paid for the house originally!) in credits from the state, and the value of the house rises… about $130,000? On what planet does subsidizing a private residence in a wealthy neighborhood make any sense for taxpayers? Why did Missourians have to effectively reimburse this person the purchase price of their home? Who’s looking out for the taxpayers here? And who in their right mind and looking at the numbers thinks this is a good “investment” for the state?

The HPTC is a mess of a program. The least the legislature could do is set a date for this madness to end.

March 12, 2014

Hospital Price Transparency Bill A Bold And Necessary Reform

In the coming days, the Show-Me Institute will release a policy brief about what Missouri can do to improve access, cost, and quality of care for Medicaid patients. Authored by yours truly, the paper outlines five serious reform ideas, and one of those ideas focuses on price transparency from hospitals.

One of the biggest obstacles to greater competition and lower prices in the health care arena is the absence of readily accessible and easily comparable pricing information for common medical procedures. For as many things as the Affordable Care Act got wrong, it got right its requirements for greater price transparency. A review of the data last year by the U.S. Department of Health and Human Services hammers this point home.

For example, average inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Okla., to a high of $223,000 at a hospital in Monterey Park, Calif.

Even within the same geographic area, hospital charges for similar services can vary significantly. For example, average inpatient hospital charges for services that may be provided to treat heart failure range from a low of $21,000 to a high of $46,000 in Denver, Colo., and from a low of $9,000 to a high of $51,000 in Jackson, Miss.

There are numerous reasons costs can vary wildly from hospital to hospital, and quality of care is almost certainly a component. But if you’re from California and could travel to Oklahoma instead to pay less than 3 percent of the cost of a joint replacement, wouldn’t you want to know that? If you could travel across town to another hospital to pay one-fifth the cost for a procedure, wouldn’t it be important to have that information? With few exceptions, state transparency requirements for hospital pricing are pretty awful nationwide, and consumers are hurt when that information is effectively withheld.

That is why I am very much a fan of Missouri Senate Bill 684, sponsored by Missouri Sen. Jason Holsman (D-Jackson County), which would help deliver precisely that sort of information. Coincidentally, the bill will be heard in a Senate committee later this week — right about the time we release my policy brief. I intend to submit testimony on the bill.

SB 684 would be a great stride forward for Missouri health care consumers. I hope Sen. Holsman’s colleagues take the proposal very seriously.

State Audit Recommends Sunset Of Low-Income Housing Tax Credit

A new state audit recommends a sunset of the state’s low-income housing tax credit. It’s a great recommendation that we have supported in the past. You can find the full audit here and the “citizen summary” here. The audit highlights a broad set of problems with the current program — not the least of which being that nearly $1.5 billion worth of Low-Income Housing Tax Credits (LIHTC) are outstanding and have not been redeemed. This paragraph from the auditor’s press release is indispensable (emphasis mine):

Currently, only 42 cents of every dollar issued actually goes toward the construction of low income housing; the remainder goes to the federal government in the form of increased federal income taxes, to syndication firms, and to investors. State law allows claiming the same project costs under two or more tax credit programs. This “stacking” of tax credits can be lucrative for developers, but it generates no additional economic activity or state benefit.

To reiterate: Less than half of the money spent through the LIHTC program… actually goes toward the building of low-income housing. Page 16 of the audit goes through all of the auditor’s recommendations, including the idea of adding substantive spending caps to the LIHTC. That’s an excellent idea. When you have a billion-dollar budget-buster like this sitting out there, a strong cap is an obvious and common sense reform, though the Missouri House’s track record on tax credit reform issues has been abysmal.

Either way, the auditor’s report recognizes the need for reform to the LIHTC. It’s an open question whether the legislature will also recognize the problem.

March 7, 2014

‘Right To Try’ Bill Heard In Missouri House

Last week, I testified on Missouri House Bill 1685, known as “Right to Try” (or as Garrett Haake of KSHB 41 in Kansas City calls it, “the Missouri Buyers Club bill.”) This legislation would allow terminally ill patients to use experimental medications that have not yet completed Food and Drug Administration (FDA) testing, but have passed “Phase One” of the FDA’s approval process. As KSHB explained:

Phase one refers to the first phase of FDA approval in which a drug has been proven to be safe for human consumption, but not thoroughly tested for overall efficacy, appropriate doses or possible side effects – a process that could take years.

Not every investigational drug is effective, and it takes time for new drugs to complete the FDA trials. But for terminally ill patients, unfortunately, that’s time they do not have. HB 1685 stands for the proposition that terminally ill patients should have the opportunity to try all reasonable means to fight for their health and their lives.

I do realize there are FDA obstacles to the implementation of this reform. Missouri can institute a law that conflicts with the federal law, but the federal law will still take precedence. That doesn’t mean, however, that Missouri can’t change its law to anticipate movement at the federal level, whether those changes would come in the way of statutory revisions, waivers, or non-enforcement.

I think HB 1685 is a compassionate and reasonable response to a very real problem that American families and their loved ones face today. It’s time to talk about how we can give those families hope by making more treatment opportunities available where that’s possible; I’m glad Missouri is discussing it.

February 26, 2014

Paycheck Protection Bills Return To The Missouri Legislature

One of Americans’ most fundamental rights is the right to free speech. Unfortunately, that right often is undermined in the area of public employment. Many public employee unions not only collect dues for their representation, but they also collect them for political activity. Generally speaking, the presumption is that the employee supports the union’s politics, even though that’s not always the case.

Shouldn’t unions have to compete for their political dollars and donations like any other interest group? I think so. That’s why “paycheck protection” reforms are so important: they allow employees to opt in to paying for a union’s politics, rather than forcing them to opt out. The presumption, in other words, is that the employee’s political dollars are first and foremost the employee’s, not the union’s. That modest reform would re-balance the power of dues collection in favor of public employees rather than defaulting in favor of public unions.

The good news is that Missouri’s legislature passed a law last year that would have rectified the problem. The bad news is it was vetoed, and that veto wasn’t overridden during the special session.

But the (other) good news? Variations of that legislation are currently circulating in the Missouri House. HB 1093 and HB 1617 address the issue directly, requiring a separate consent form for dues to be collected and used for union political purposes. HB 1093 is particularly good in requiring an accounting of dues to ensure that dues earmarked for representation are not spent on politics. Without that verification mechanism, it would be difficult to determine whether the law is being followed and whether employees’ free speech rights are being upheld.

I will keep an eye on both of these bills; stay tuned.

February 25, 2014

Why Would Unions And Some Big Businesses Support Raising the Minimum Wage? Some Reasons

Last week’s Congressional Budget Office (CBO) report brought the negative effects of a proposed minimum wage hike into sharp focus. The CBO found that while wages would, by definition, increase for some employees, up to a million of our most vulnerable workers could lose their jobs. For all the bluster about free-market advocates being “anti-worker,” I can’t imagine a more anti-worker effect to a policy than the one you would see with a minimum wage increase. After all, what could be worse for a laborer than having his or her job taken away?

That’s what makes support for a minimum wage increase from unions and big business seem so odd at first glance. Why would unions such as the American Federation of State, County and Municipal Employees (AFSCME) support a change of policy that would hurt hundreds of thousands of Americans? Why would some businesses want to increase the cost of labor?

A few reasons stand out.

For starters, artificially raising the cost of non-union labor can make union labor more attractive. As the Cato Institute noted more than a decade ago:

Unions are labor cartels that attempt to restrict the supply of workers entering given occupations. Since non-union labor is priced below the cartelized price of union labor, it is an attractive substitute for union workers. Because unionization of all potential competition to the cartel is impossible due to the high policing costs that would be involved, unions resort to the minimum wage. By artificially increasing the wage rate of lower skilled workers — who could substitute for union workers — the minimum wage increase the demand for union workers and hence their wage rates.

Hypothetically speaking, if the labor of an entry-level employee with no experience is worth $7.50 per hour in the open market but the law requires he be paid $15 per hour, trained union labor costing $20 per hour looks considerably more attractive. By harming non-union labor, unions are able to help themselves.

Moreover, some large businesses have supported increasing the minimum wage because it would harm their competition. Costco, for instance, supports raising the minimum wage today at least in part because the entry-level wage for a Costco employee is $11.50, more than $4 per hour above the federal minimum. At a minimum wage of $10.10 per hour, Costco’s business model would remain largely unaffected.

But you know who would be affected by the change in the law? Businesses, large and small, whose profit margins are far narrower. That’s especially true of small businesses in our communities already suffering under a mountain of tax and regulatory burdens in a difficult economy.

Yes, there are, no doubt, some in both the business and labor camps who in good faith might think a minimum wage increase won’t hurt our vulnerable poor. But labor and business leadership know better, and the economics are as clear as the incentives.

February 24, 2014

Strong Arm Of Public Employee Unions Reaches For Home-Care Workers

Last year, I wrote extensively about “paycheck protection,” an issue that deals with public employee unions and how they collect their political dues. But there are many facets to the public employee unionization problem beyond political dues. One of particular note is the forced unionization of home-care workers. Pamela Harris takes care of her disabled son Josh in Illinois, but because the state pays for Josh’s care, Illinois wants to force Pamela — Josh’s mother and caretaker — to join and pay dues to a public employee union.

The government is arguing that because people like Harris receive taxpayer money, they are state employees subject to union dues, though not the pensions and liability coverage that their fellow public sector workers receive. Harris was puzzled by the classification, considering that unions cannot negotiate other benefits for her family because the Medicaid program is capped.

The state receives very personal and comprehensive care for Josh, its intended beneficiary; Pamela gets to help her son. And obviously, this wasn’t a fight Pamela was picking. She just wants to take care of her child.

“I don’t want to be the face and name associated with an anti-union campaign, but this is at its heart a mother doing what she thinks is right for her son,” she told the Washington Free Beacon. “I don’t see this as a union issue, but the current administration in Illinois has an unhealthy relationship with public sector unions. We got swept up in that.”

Her son Josh, 25, has a rare muscular genetic disease called Rubinstein-Taybi Syndrome that has left him intellectually disabled, non-communicative, and unable to control his body. She bathes him, brushes his teeth, pops his dislocated limbs back into place, and takes him to meetings with doctors, specialists, and therapists.

Think this is just an Illinois problem? You might want to reconsider that assumption. In 2008, Missouri voters passed the Quality Home Care Act, which gave comparable power to the home-care unions in Missouri to force home-care workers to pay them tributes — I mean, dues. As the Missouri Chamber of Commerce noted (emphasis mine):

The Quality Home Care Act makes it easier for these workers to unionize and begin the collective bargaining process. The language allows a vote to go under union representation if just 10 percent of the workers expressed a desire to organize, compared to the 30 percent that is usually required. It requires all personal care attendants to pay union fees. In addition, the election to determine union representation would be conducted via mail ballot and not by secret ballot, which is current law.

This issue, now sitting before the U.S. Supreme Court, is not just a problem in Illinois — it’s a Missouri problem, too, and one we’re closely watching. Pamela Harris shouldn’t have to fight a union to take care of her son, and no worker should have to deliver unions a ransom to work in a given field. We’ll keep you posted.

February 21, 2014

Medicaid Expansion Proponents Should Be Faithful To Missouri’s Values

One of the bigger news items this week was the introduction of a Medicaid expansion proposal. Along with instituting some work requirements, the latest bill would raise the Medicaid eligibility level for many adults to 138 percent of the federal poverty level and implement what some call the “Arkansas model” for those between 100 percent and 138 percent of poverty, who would get state-supported health insurance.

The cost of the expansion would be enormous. Obamacare’s 90/10 “enhanced match” — that is, how much the federal government pays for Medicaid versus how much the state pays — only kicks in for newly eligible enrollees, not currently eligible enrollees. A 2012 study by the Kaiser Family Foundation suggests the cost to the state of that new population would be well north of a billion dollars over the next decade; the added cost of the currently eligible population, due to the Affordable Care Act, would be closer to $2 billion. It’s still not clear yet how the state would pay for any of this new spending.

The bill would also adopt a variation of the Arkansas expansion plan to try and use Medicaid funds to pay for private insurance for those between 100 percent and 138 percent of poverty. Again, the plan would be very expensive to the state. However, as often as Arkansas comes up in Missouri’s Medicaid conversation these days, what if I told you that even Arkansas is second-guessing the Arkansas model?

The State House for a second day in a row defeated a compromise plan to expand Medicaid by using federal Medicaid funds to buy private insurance for low-income residents. The program was approved last year as an alternative to expanding Medicaid’s enrollment under the federal health law. The House speaker, Davy Carter, has said the House will keep voting on the measure until it passes.

Reform must precede any proposed expansion in Missouri. Arkansas’ plan — which despite current opposition could still end up getting passed in that state by year’s end — isn’t so much a reform as it is a grab for federally financed deficit spending, which is why the expansion is alluring to politicians nationwide. That might fit with the way elected officials think, but that isn’t the way Missouri families try to run their households day-to-day.

That brings us back to Missouri’s sensibilities. Missouri’s motto (and the name of this Institute) stem from a saying that W.D. Vandiver popularized many years ago.  While the origin of the saying – “I’m from Missouri; you’ll have to show me” — is subject to some dispute, Mr. Vandiver described its meaning thusly in a letter published in 1922 (emphasis mine):

“The public has not seemed to care for any prepared formula and has apparently accepted the ‘Show Me’ as properly indicative of the inquiring spirit and the cautious habit, about as given by the Literary Digest and the dictionary which defines it as the attitude of ‘one not easily taken in.’ “

Prudence: it’s one of Missouri’s hallmarks. And that’s why if we recognize that Medicaid is a failed program, expanding without first fixing it is a fool’s errand — one lacking in prudence. It is clearly irresponsible to set into motion a new entitlement whose foundation is in substance the current Medicaid program; that’s what this new bill seems to do.

February 20, 2014

Significant Tax Cuts March Forward In Missouri House

Last week, I was invited to testify on Missouri House Bill 1366, a combined tax cut and tax credit reform of the type we have discussed many, many times. Particularly after the passage of Boeing’s special tax cut last year, it is even more important to reiterate that a better tax policy is one that doesn’t choose winners and losers in the tax code, but one that empowers all Missourians. I also submitted testimony this week on what is left of 2011’s Aerotropolis, the Missouri Export Incentive Act. As you might expect, this proposed legislation doubles down on a broken tax credit status quo by, ultimately, unnecessarily subsidizing imports. I will be following both bills closely… for obviously different reasons.

But those, of course, aren’t the only bills I’m following, and on Wednesday, another piece of legislation — a big tax cut — cleared its first hurdle in the House. That bill, HB 1253, is a stripped-down version of last year’s Broad-Based Tax Relief Act. The new bill gets back to the basics, cutting taxes for businesses of all sizes by half over a five-year period (assuming the revenue triggers are made annually, of course.) I expect that simplicity will serve the bill well, and so it was not surprising that the bill received significant backing from the chamber yesterday with a 104-48 vote.

We have talked repeatedly about how destructive income taxes, and particularly taxes on business income, are to growth. It is good to see the legislature responsibly moving forward to lift the tax burden on the family businesses in our communities, just as it was so willing to do for Boeing just a few months ago. Long way to go, but this is a start.

Left Wages War On Poor With Minimum Wage Push

Over the last few months, the push has been on to raise the minimum wage. While increasing the wage sounds altruistic, in reality, it harms many of the people it should be helping. Tuesday’s Congressional Budget Office (CBO) report — which showed that up to a million people could lose their jobs if the wage was hiked to $10.10 — serves to hammer that point home.

I discussed those policy problems in a KCPT interview broadcast last week, which can be viewed below.

February 14, 2014

Half Percent Tax Cut, 100 Percent Gimmick

When I caught wind yesterday that a “deal” was afoot between the Missouri governor and a senator to reduce Missouri’s taxes, I was pretty excited. Yes, the legislature has disappointed us repeatedly before. Yes, the governor has been very bad on the tax reform issue.

But hope springs eternal. So when the “big announcement” came down about the agreement on the tax cut, the response from pro-growth types could be best summarized in one word:


If lawmakers agree to fully fund Missouri’s public schools and rein in spending on the state’s biggest tax credit programs, Gov. Jay Nixon said Thursday he would be willing to sign a tax cut bill.

The framework of a potential deal comes after negotiations with Sen. Will Kraus, a Lee’s Summit Republican sponsoring tax cut legislation. …

According to a release issued by the governor’s office, Kraus intends to put forward legislation reducing the top individual income tax rates by .25 percent effective only after the K-12 foundation formula is fully funded and only after $200 million in revenue growth. The legislation would provide an additional .25 percent reduction effective after legislation is enacted to reduce low income housing tax credits to $110 million annually and historic preservation tax credits to $90 million annually.

If you’re completely not serious about cutting taxes to boost growth, a fraction of a percent cut in one tax might sound like pretty good politics. But in reality? It would do practically nothing in terms of substantive growth, to say nothing of the prerequisite spending that would be necessary for the cuts to take effect. (Which is to say nothing about the illusory tax credit “reform,” which stops short of adequately cutting two hugely wasteful programs and might also leave hosts of other ineffective credits untouched.)

Lots more spending for practically no tax relief? Some deal. Missourians deserve better than a gimmick like this.

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